Timing
Treasury announced on June 9, 2026 that it will issue draft rules no later than the end of September 2026. These rules will have the effect of law for 2027, while the Department continues to work on final rules.
Yes, and 30 already have formally indicated to Treasury that students in their states will be allowed to receive FSTC-funded scholarships in 2027. Treasury specifically previewed the upcoming rules so that governors have all the information they need to confidently opt in. For example, Treasury explicitly responded to misinformation about the law and assured governors that traditional public-school students would be eligible for FSTC-funded scholarships if a state opts in. Treasury also explained that it expects to allow governors to use third-party programmatic audits to compile their State SGO Lists. This allows governors to perform its due diligence with minimal effort. If governors were wondering if they could block participation by private and religious schools, Treasury also answered that question. SGOs will, if they choose, be able to provide tuition scholarships in a state if they comply with the law, even if the governor opposes this parental choice.
Top Issues We're Monitoring
Answer: Awaiting Treasury Rules
Background:
Treasury has provided a general picture of how governors can compile their State SGO Lists. We even know that the IRS intends to set up a web portal to facilitate administration of the SGOs. But we still don’t know when lists can be submitted (earlier is better), whether governors will be allowed to submit SGOs on a rolling basis (they should be), what paperwork is required, or how governors should assess SGOs against provisions of the law that cannot be verified in advance of implementation. The Coalition has encouraged Treasury to use a combination of third-party verifications, safe harbors, and attestations under threat of perjury, especially in the first year of operations.
Answer: Awaiting Treasury Rules
Background:
Treasury has acknowledged that it will expect governors to welcome requests from any SGO seeking to be included on the State SGO List. States are responding and shaping staff to handle SGO application processing and compliance. We do not know if governors will be expected to design their own SGO application processes or if Treasury will facilitate or standardize this process with deadlines, forms, or the IRS portal. The Coalition has recommended an efficient, standardized process to help ensure equal treatment for SGOs across state boundaries.
Answer: Awaiting Treasury Rules
Background:
Several governors have described how they would prefer to block taxpayers from donating to specific types of SGOs. While Treasury has explicitly said such behavior would not be allowed, the FSTC Coalition remains concerned that governors will not approve some SGOs based on personal whims, political pressure, or a new SGO’s short time in business, rather than compliance with the law. This will be a perpetual problem, and Treasury should determine what its appeal process will be.
Answer: Awaiting Treasury Rules
Background:
The law implies in § 25F(g)(1)(A) that states should be able to elect to participate after January 1st during the first year of the program, but Treasury has not yet confirmed it will accommodate such requests.
Answer: Awaiting Treasury Rules
Background:
Treasury staff indicates that they have listened closely to both sides of this debate and will reveal in the September 2026 guidance how they interpret the law and its silence regarding married couples filing jointly. The higher amount would mean billions in extra funds for scholarships each year and more robust scholarship programs to serve children.
Answer: Awaiting Treasury Rules
Background:
Treasury has suggested that the law’s cross-reference to a subsection of Coverdell (§ 530(b)(3)(A)) might prohibit families from selecting their own extended-day programs (including afterschool and summer programs) without permission of a “school,” as defined by the state. In practice, this would mean that families could not choose such programs as Boys & Girls Clubs, YMCAs, and hundreds of community-based organizations unless they are under contract by their child’s “school.”
The Coalition’s position is that the SGO should select which of the eligible expenses it will cover for families, and then it is up to the family to decide whether to accept the scholarship and how to use it. By over-reading the reference to Coverdell, Treasury could convert a rare student-centric law into just another system-centric law.
Answer: Awaiting Treasury Rules
Background:
At its rule preview, Treasury suggested that the law’s cross-reference to the Coverdell subsection might mean that students cannot receive § 25F scholarships unless they attend a “school” as defined in state law. The definition of school was not directly written into 25F or incorporated by reference to it. At least 28 states do not clearly define homeschools, microschools, hybrid schools, and co-ops as “schools.”
The Coalition’s view is that all students are eligible for EFTC-funded scholarships if they are “eligible to enroll” in K-12 schools and meet the income requirements. The reference to Coverdell was merely meant to provide a list of the types of eligible expenses, not to impose yet another regulatory regime on the scholarships. Congress did not mean for Treasury to treat EFTC-funded scholarship recipients as if they were the beneficiaries of Coverdell trust accounts. Nor did they intend to directly connect purchases to a specific school building. Moreover, the Congressional intent of using Coverdell was to limit scholarships to educational purchases to improve academics for a specific student, not provide schools with programmatic funding.
Answer: Awaiting Treasury Rules
Background:
SGOs across the country are exploring how to tap into payroll systems to accelerate the collection of donations, reduce fundraising costs, and ensure accurate federal withholding. The current IRS systems can accommodate this already by having each taxpayer amend his or her W-4 to account for SGO contributions, with a net zero impact on each paycheck. The simplest case would still require taxpayers to set up their own periodic payments to SGOs.
The IRS could take several other steps to make it easier for taxpayers to use payroll withholding to make qualified SGO contributions. In these cases, employers, their agents, payroll providers, or even the IRS itself would transfer contributions periodically as directed by the taxpayer to selected SGOs. The annual contribution would be included on the employee’s W-2, reducing paperwork and potential fraud. The Coalition and SGOs across the country are encouraging IRS to take these extra steps.